The company, based in Stockholm, is also looking at having clothes made in Myanmar, Ethiopia and Kenya as rising wages in China, its biggest supply market, put pressure on profit margins, Chief Executive Officer Karl-Johan Persson said today in a telephone interview from Melbourne, where the company is opening its first Australian store.

Global apparel companies Inditex SA and H&M are expanding into China’s less developed regions as competition intensifies in the largest cities in the Asian nation. Fast Retailing Co. and Gap Inc. are also adding stores and introducing new brands to tap rising incomes in China, where a measure of consumer confidence rose to a 10-month high in February.

“The whole country is definitely getting more competitive,” Persson said, acknowledging new rivals and international retailers that are improving and expanding in the country. “We’ve tested second tier-cities and third-tier cities in China and found the concept is working well.”

The retailer will open more stores in China this year than in any other market, with between 80 and 90 new outlets planned. Consumers in the smaller cities beyond Beijing, Shanghai and Guangzhou were receptive to H&M’s concepts, and that “opens up a lot of expansion opportunities,” he said.

H&M already has stores in smaller Chinese cities such as Meishan, Daqing, Weifang, Baicheng, and Zhangjiajie, according to the company’s website. It’s going to open a store later this year in Zhuhai, a third-tier city bordering Macau, Trish Varker-Miles, an external spokeswoman for the company at the Trish Nicol Agency in Sydney, said by e-mail.

Market Opportunity

“It’s a reflection of the strong competition in bigger cities and also a reflection of the opportunity to be had in the smaller cities,” said Matthew Crabbe, head of Asia Pacific research for industry researcher Mintel Group. “More companies are coming in and the pie is getting sliced more thinly.”

The chain hadn’t been affected by a government austerity drive that’s hurt luxury-goods makers such as Prada SpA and LVMH Moet Hennessy Vuitton SA, and sales growth has been strong in 2013 and the start of 2014, Persson said.